Closing the carbon loophole

The new Bay Bridge connecting San Francisco and Oakland, opened in 2013, was built with steel from a carbon-intensive Chinese factory rather than cleaner steel from California.

The European Union is lauded as a climate leader for reducing its greenhouse gas emissions by nearly 20 per cent since 1990. But it realized some of those gains by outsourcing production to places with less stringent standards. If imported goods are included, Europe’s emissions have actually increased by 11 per cent, according to a report from ClimateWorks Foundation.

Europe is not alone in exploiting this carbon loophole. The United States’ 6 per cent increase in domestic emissions since 1990 ticks up to a 15 per cent increase when trade is included, according to the online database Global Carbon Project. As of 2015 Canada’s emissions have increased 22 per cent over 1990 levels, but if imports are included, that increase jumps to 26 per cent.

“They’re kind of hiding the carbon,” said Matt Lewis, communications consultant for ClimateWorks and an author of the report. Globally, more than 20 per cent of greenhouse gas emissions escapes regulation because it is traded internationally.

Now, some forward-thinking governments in North America are beginning to close that loophole for one economic sector: industrial materials used in government-funded projects.

Take California

Last October, California Governor Jerry Brown signed into law the Buy Clean California Act, possibly the world’s first legislative effort to address carbon emissions in the supply chain.

The law requires the state’s Department of General Services to set a maximum “acceptable lifecycle global warming potential” for different building materials, including steel, glass, insulation and certain types of pipes. Only products with embodied emissions below the threshold it sets can be considered for state-funded projects. The law takes effect in July 2019.

Setting baselines in this way allows the state to make big-picture comparisons among potential suppliers, said Rajinder Sahota, assistant chief of the industrial strategies division at the California Air Resources Board. Decision makers will be “looking at relative footprints across the contracts” submitted, she said.

Buy Clean California was championed by a surprising coalition of industrialists, environmentalists and labour. They were triggered to act when the new Bay Bridge connecting San Francisco and Oakland, which opened in 2013, was built with steel from a carbon-intensive Chinese factory rather than cleaner steel from California. That decision had significant climate implications, according to testimony from the BlueGreen Alliance, a labour-environmentalist partnership. Local steel would have used 180,000 fewer tons of carbon dioxide, equal to taking 38,000 U.S. cars off the road for a year.

“If you measure and charge for carbon on your own domestic industries but not on imports, then your own industries are at a disadvantage,” said Phil Northcott, CEO of C-Change Labs, a Vancouver-based startup that develops greenhouse gas accounting and pricing software.

As general manager of a Gerdau Steel manufacturing facility in Rancho Cucamonga, California, Mark Olson lobbied hard for the Buy Clean California Act. Now, he’s managing two plants in Ontario and working with Canadian governments on similar programs. “There’s a cost to producing clean products. And as long as we’re all playing on the same level playing field, we’re OK with that cost,” said Olson. “It’s when we’re not… that it becomes very challenging for us.”

Because California spends about $10 billion (U.S.) a year on infrastructure projects – bridges, highways, government buildings, universities – this new law has the potential to shift markets, said Lewis of ClimateWorks. Manufacturers “don’t make a different factory for private sector and the public sector. So governments can leverage their purchasing power to achieve transformation across the industry.” California has done this successfully several times already, he said, pointing to renewable energy targets and efficiency standards for appliances, cars and buildings.

Washington state is considering a bill similar to California’s, said Ryan Zizzo, technical director of Zizzo Strategy, a Toronto-based consulting firm and author of a report on governments’ efforts to account for embodied carbon. Washington, though, is aiming to cover a wider swath of construction materials than California – including concrete, notably excluded from California’s law thanks to industry lobbying.

Europe leading, Canada following

Trained as an engineer, Zizzo was a green building LEED consultant in Canada for a decade before spending three years in Finland. There he was introduced to the idea of embodied carbon. Several European countries have policies to account for it when constructing new buildings, he said. Standouts include Switzerland, which requires lifecycle assessments for new government buildings and sets targets for embodied carbon for some types of buildings. And Sweden now requires large transportation infrastructure projects such as roads and rails to calculate and report embodied carbon, with incentives to reduce it.

By contrast, Zizzo says, as a LEED consultant in Canada, “I was working on the greenest buildings in the country, but no one was talking about embodied carbon or applying that to projects.”

That’s beginning to change now, he said, with policies such as the Treasury Board of Canada’s greening procurement program, Ontario’s Ministry of Infrastructure long-term infrastructure plan, British Columbia’s Ministry of Environment greening procurement program and Québec’s Wood Charter. But much in these policies is more or less voluntary at this time. The few requirements that exist apply to a very small proportion of the construction taking place.

Counting challenges

The policies of California and Europe require manufacturers to prove their products’ footprint with Environmental Product Declarations, or EPDs, which are certified by independent, third-party auditors who look at the lifecycle of individual materials and the types of energy sources used in manufacturing them. The lifecycle assessment requires adding up all the energy used in mining materials, manufacturing the product, shipping it and recycling or disposing of it at end of life.

These analyses are important because the same material can be made with different manufacturing processes that may have dramatically different carbon footprints. Consider steel, which caused 7 per cent of global greenhouse gas emissions in 2012. Making steel has traditionally been extremely energy intensive because coal is an ingredient and high heat is required in multiple steps. But increasingly, manufacturers are making steel from recycled scrap in electric arc furnaces, which can be 24 times more efficient. Also, manufacturing uses electricity, which is cleaner in California, where 36 per cent comes from renewables, 36 per cent from natural gas and just 4 per cent from coal, versus, say, China, where 26 per cent comes from renewables, 3 per cent from natural gas and 65 per cent from coal.

But when using materials from a place that doesn’t regulate carbon, data for that particular product may be unavailable. That leads project managers to fill in the blank with data from another jurisdiction, said Zizzo.

“The classic example is North American manufacturers and building designers using data from Europe,” he said. Because Europe regulates industrial emissions, facilities there have to report their actual emissions under the European carbon trading system. U.S. facilities do not. So “there’s a lot more data available for, say, how much carbon is in steel from Europe than from North America. But we very have different energy systems, we have very different energy policies,” he said, which can make the European data pretty inaccurate as a proxy for U.S. steel.

Some software programs use averages for materials that lack data, said C-Change Labs’ Northcott. “If you use an average for people who aren’t reporting, it means the bad actors get a free ride,” he said. “And we can’t afford to give people a free ride.” To counteract that pitfall, his software assumes a high value for carbon intensity for any material that is not declared. It’s an incentive to factories unregulated by their governments to declare their emissions, he said. “We assume that anyone who does not declare is one of the worst.”

Reliable data is also elusive because actual emissions are always changing, said Zizzo. Factories are upgraded, or the source of electricity in the mix changes. Monitoring emissions and updating the data must be an ongoing effort to ensure accuracy.

Despite these challenges, laws like Buy Clean California are a step toward helping jurisdictions that care about reducing their climate impact to regulate not just what they make, but also what they use.

Said Northcott: “We can only control what’s inside our borders and what we buy. But what we buy is an enormous power. And as long as we use that buying power in a nondiscriminatory way [so as not to draw the ire of the World Trade Organization] we can make carbon have value in China.”